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Currencies

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Banks

RBS falls 2% after failing BoE stress test

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Currencies

China capital curbs reflect buyer’s remorse over market reforms

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Banks

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Categorized | Financial, Insurance

Barnier moves to allay pension plan fears


Posted on February 29, 2012

Strict new capital requirements for insurers will not be flatly applied to all pension schemes, Europe’s top financial regulator will promise on Thursday as he attempts to contain alarm over a planned shake-up of retirement plan rules.

But in a speech to begin a process to review regulation of pension funds, Michel Barnier, Europe’s internal market commissioner, will insist there should be no “silo mentality” to shield the funds entirely from rules applying to other financial sectors.

His attempt to “dispel the hyperbole” comes as a broad coalition of business and industry groups has issued a warning over “dangerous” measures that would stunt growth, hurt future pay-outs to pensioners and kill off all remaining final salary schemes. The rare joint plea for Mr Barnier to reconsider the direction of the reform proposals comes from eight of Europe’s biggest representative groups, including Business Europe, the European Trade Union Confederation and the European Private Equity and Venture Capital Association.

The European Commission is working on a revision of the occupational pension funds directive that will draw on the approach of the Solvency II regime, Europe’s biggest shake-up to date of insurance regulations, which is due to take effect in 2014.

Mr Barnier will dismiss claims that applying these rules across the board will cost European businesses €800bn ($1.1tn) or force the closure of defined benefit schemes, saying that there is “no question of penalising schemes that are working well”.

But he will argue that a fairly applied set of rules will be important to encourage more cross-border funds, lower costs for employers and more choice.

“I have no intention of penalising either pension funds or insurance companies,” he will say. “We are going to propose a regulatory framework specifically for pension funds, but this will not be done with a ‘silo mentality’. We must draw on the rules developed in other financial sectors, in particular some useful aspects of Solvency II.”

Critics fear that rigidly applying the tougher rules for the insurance sector to retirement schemes would force employers to build higher reserves by reducing the risk appetite of funds.

“Applying Solvency II-type rules to pension funds will make [them] too expensive for many companies,” said Philippe de Buck of Business Europe.

Private equity and venture capital groups argue the measures will jeopardise an important source of capital for business. Guy Hands, founder and chief investment officer at Terra Firma, said at a private equity conference in Berlin: “I find it extraordinary that . . . if you look at the pension markets, regulators are looking to clamp down on one of the few ways pension funds have got to generate returns.”

Mr Barnier will argue there needs to be “sound calibration of risks” involved in those remaining defined benefit schemes, as well as common prudential tools for pension funds that are underwritten by companies and not subject to the same capital rules.

He is expected to say: “It would probably not be feasible to immediately apply stricter rules to the outstanding liabilities of pension funds. We must therefore find alternative solutions, including appropriate transitional arrangements.”